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Employment - risk free trial periods?

By Claire Mansell - 8 Sep 2010

The 90-day trial period laws are not as risk free as many employers - and lawyers - may believe. In the first Employment Court case involving the new laws, the employee won.

Employer must be 'fair and reasonable'

In Smith v Stokes Valley Pharmacy Limited, the Court ruled that the employee was unjustifiably dismissed, even though the dismissal occurred within the first 90 days of employment.

In its ruling, the Court reconfirmed the employers' obligations to act in good faith, and to be 'fair and reasonable'.

So what is 'fair and reasonable'?

The Court ruled that Stokes Valley Pharmacy should have complied with its obligation in the employment agreement to:

  • train and performance assess Ms Smith; and
  • hold regular meetings with her for that purpose.

The Court also stated that an employer must still tell its employee why the employee is being dismissed, although the reasons do not have to be stated in writing.

Examination of the Court's ruling identifies other reasons why the Court ruled against  Stokes Valley Pharmacy:

  1. When the company purchased the business, it kept Ms Smith working for a couple of days before getting her new employment agreement completed and signed.
  2. Therefore, the Court held that Ms Smith was not a "new" employee when signing the employment agreement, so the employer could never have imposed a 'trial period' because they are only available for new employees.
  3. Stokes Valley Pharmacy gave 2 weeks notice of termination to Ms Smith, instead of the 4 weeks stipulated in her employment agreement.
  4. Pointing to the short notice, the Court held that Stokes Valley Pharmacy had not given legal notice of dismissal.  So as an employer it was not entitled to the trial period immunity from being sued, even if it had lawfully inserted such a clause in the first place.

Implications of Court's decision

From an employer's perspective, the current position might best be summarised by the expression 'the devil's in the detail'.

We recommend employers seek advice before:

  • introducing a trial period into their employment agreements
  • using any part of an employment agreement to dismiss an employee.

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